The state pension is set to undergo a significant tax change as HMRC prepares to implement a new policy announced in the Autumn Budget 2025. Under the new rules, individuals whose sole income is the state pension—with no additional amounts—will no longer be liable for income tax on their payments. This adjustment comes as the full new state pension is projected to exceed the personal allowance threshold following the April 2027 triple lock increase.
Background of the Tax Change
The current full new state pension pays £241.30 per week, or approximately £12,550 annually. This amount is close to the £12,570 personal allowance, the income level at which most people begin paying income tax. With the triple lock guaranteeing annual increases based on the highest of 2.5%, average earnings growth, or inflation, the full new state pension will inevitably become taxable under existing rules.
The Labour government introduced this tax exemption to prevent pensioners solely dependent on the state pension from facing a tax burden. HMRC officials have indicated that legislation will be required to enact the change, though specific details on implementation have not yet been released.
Petition for Full Tax Exemption
In addition to the government's policy, a new petition to Parliament is gaining traction, calling for the state pension to be completely exempt from income tax. The petition argues: "British citizens who have, throughout their working life, paid National Insurance and tax, should not then be taxed on the state pension regardless of other earnings/pensions."
The petition further states: "They have worked throughout their lives and paid tax on their earnings, to then be taxed again is abhorrent." Under current rules, if a basic rate taxpayer already uses their personal allowance from other income, they would pay approximately £2,510 in tax on the state pension.
Implications for Pensioners
The upcoming change will benefit those with no additional income beyond the state pension, effectively removing their tax liability. However, pensioners with other earnings or pensions will still be subject to income tax on their state pension payments. The government has yet to confirm the precise mechanics of how the exemption will apply, but the policy is expected to take effect after the April 2027 triple lock increase.
The triple lock mechanism ensures that state pension payments rise each April, which has accelerated the approach toward the personal allowance threshold. The new policy aims to address this by exempting those with no other income, while the petition seeks a broader exemption for all pensioners.
